At 78 acres of mostly bare dirt, the site of the proposed Kendall Yards development overlooking the Spokane River is a conspicuous piece of real estate. After all the attention its developer received for an ambitious plan to build hundreds of homes and provide space for businesses there, however, heads are turning for a different reason: Nothing has been built.
Developer Marshall Chesrown admits the mixed-use project in Spokane is at least six months behind schedule, and the scope of its first phase has basically been cut in half – from nearly 750,000 square feet of commercial space and 800 homes to 440,000 square feet of space and roughly 350 residences. But Chesrown rebuffs suggestions that a struggling real estate market or the lending crunch have jeopardized his project.
“To some people it might seem like it’s going slow,” he said. “They want to come up with all kinds of theories and philosophies. Reality is, it can only happen as it can happen. It includes financing, it includes appetite from retailers.”
Chesrown said he has lined up a national company as a development partner – he wouldn’t reveal its name – and now hopes to have completed homes and shops on the parcel between Monroe and Maple streets in two years.
“It’s purely economically driven,” he said this week while behind the wheel of a Cadillac Escalade emblazoned with a slogan promoting Black Rock Development, of which he’s the CEO.
Yet some public officials wish the project were moving faster.
“I think we’re disappointed that some major development work didn’t occur this year. I don’t think any of us are surprised about what’s happened with this type of funding and the marketplace,” said Steve Corker, a Spokane City Council member who represents the district that includes Kendall Yards.
City employees assigned to work with Black Rock say they are ready to help move the project ahead. That means finishing a development agreement with Chesrown spelling out terms of the long-term project, making street improvements and finalizing a plat. Environmental cleanup and relocation of large power lines to underground vaults are finished, making the land nearly ready for construction.
“It’s Marshall Chesrown’s development, and he’ll develop it certainly at his own pace,” said Dave Mandyke, director of Spokane’s Public Works and Utilities Division. “Would we like to see it developed? Absolutely. Would we like to see it developed as he had originally proposed? Definitely. But the bottom line is he owns the property and it’s his money, so the timing of it will happen as he sees fit.”
Though the expected cost of the first phase also has dropped – to $170 million, down from roughly $300 million – Chesrown attributed delays to a cut in the availability of financing.
“These types of projects get done with some typical commercial lending, some typical construction lending, but then usually they get done with pretty significant private equity,” he said. “We’ve been working with a couple of different private equity firms now for a long time, and that environment has really changed.”
Yet when it comes to retailers, he insists the site “continues to be very well-received with everyone who’s been here.” He foresees 2010 as a crucial year for retailers looking to expand.
“You may have seen our helicopter flying over many times. We’ve shown this property to a lot of people and a lot of national-type tenants, a lot of different users that aren’t currently in Spokane,” Chesrown said.
Finding a partner
Kendall Yards has had signs of setbacks: Two large potential partners backed out for unspecified reasons. Black Rock earlier this year shuttered its downtown Spokane sales office without formally opening it to the public, around the same time the city cut a liaison post for Kendall Yards and a city official announced construction would be delayed until 2009.
Most recently, Black Rock generated a stir last month by posting a large sign off Monroe Street offering portions of the property for sale, lease and build-to-suit.
“We just put it up because we’ve had just a plethora of interest and people have trouble tracking us down, so we thought it would be better to put up a sign,” Chesrown said at the time.
The long-term plan allows for 2,600 residential units and as much as 1 million square feet of commercial space, to be constructed over roughly 20 years.
“As this project progresses after this first phase, it will be driven by what the market will absorb. That’s pretty simple,” Chesrown said. “But to do this project and to start with only one building and not any critical mass on the retail side, it isn’t a situation that retailers are going to want to be involved in.”
Much of the project hinges on finding the right partners to help with both financing and expertise in commercial development – areas where Black Rock has little experience.
“We’ve been in negotiations with various developers, because I’ve stated from the beginning that this size of project certainly isn’t in our scope to take the entire project on ourselves,” Chesrown said. “It will end up being another developer with us as kind of being the lead, and then a series of other developers.”
The company may have found that key player; the unnamed firm will be a “full-equity partner,” Chesrown said.
“They’re well-known, they’ve done this type of development in major markets,” he said.
Black Rock will look to sell residential portions to other groups to develop, he said.
City employees continue to meet with project representatives, but, “It’s been fairly quiet over the last couple of months,” said Theresa Sanders, the city’s director of economic development.
“We are hoping that they are close to an agreement with the developer and that will get things moving,” Sanders said. “That will really be our opportunity to step up and bring resources, because we’ve sort of been waiting for this to come.”
Black Rock recently submitted an updated draft of that agreement. The 20-page document proposes:
•The developer would be exempt from any future development impact fees, in exchange for paying for specific traffic improvements.
•Designating about 25 acres of the project as public amenities, including plazas, streets and sidewalks.
•Building a section of the Centennial Trail through the property.
•Cleaning up the site.
The developer would make some traffic improvements at its expense and pay no more than $275,300 for its portion of other projects for the first phase, according to the draft. If the city implemented separate proposed traffic impact fees, Black Rock would need to pay at least $8.32 million more, Kendall Yards project manager Tom Reese told the City Council. The impact fees under consideration citywide would charge developers thousands of dollars per project to pay for traffic-system upgrades.
Chesrown paid $12.8 million for the site at a 2004 Metropolitan Mortgage & Securities bankruptcy auction.
Mayor Mary Verner, the third mayor to oversee work on Kendall Yards, could not be reached this week for comment.
City officials said it was too early to comment on specifics, but Mandyke said the development agreement is important to moving the project forward.
“They’ve had it for 18 months. We’d like to bring it to conclusion,” Mandyke said.
Chesrown said the delay came about partly to allow a partner to have input.
Verner has met with Chesrown, “encouraging Marshall to move his project because we’re excited about what he can do over there,” Sanders said.
In an April 3 letter to “Prospective Kendall Yards Developers” obtained by The Spokesman-Review through a records request, Verner said the development “is projected to have a $3 billion economic impact on our local economy and is expected to catalyze additional private investment in low income neighborhoods and underutilized areas surrounding the site.”
The city also has talked about working ahead on a design review so a full review would not be needed for each building, Sanders said. She hopes to have the development agreement finished in 90 days.
Corker called public money spent on the project “an investment in the future.”
“That property will be developed someday,” he said. “I would consider what’s happening with Black Rock a bump in the road, and I’m still optimistic in the next 20 years it will be developed and it will be a very critical part of Spokane’s future.”
Chesrown said Kendall Yards is a “legacy project.”
“This is a once-in-a-lifetime opportunity for a city to have this size of a piece of property in the core of their downtown to redevelop,” he said. “It’s much more important that it’s done right with the right group of people … rather than trying to do it fast.”